New EC amendments to the Parent-Subsidiary Directive: a good move towards better tax governance

Europe 25 Nov 2013

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Tax cannot be seen in complete isolation from the wider business model, and its strategy and planning. It is one part of the overall long-term value creation process for the company and should be seen in that broader framework. This includes the context of employment created, investment in research and development, the wider social and environmental benefits and impacts in regions where the company operates, and the value offered to consumers

—Chas Roy-Chowdhury, head of taxation,ACCA

ACCA (the Association of Chartered Certified Accountants) welcomes today’s publication of the amendments to the Parent-Subsidiary Directive. It is a key piece of EU company law legislation, which will hopefully help in reducing tax avoidance in Europe by closing existing legal loopholes that some companies have been using to escape paying their fair share of fiscal contribution.

Chas Roy-Chowdhury, head of taxation at ACCA, says: 'ACCA believes that companies have a wider responsibility to be good corporate citizens and therefore need to consider the wider impacts on social capital of their tax policies. Aggressive tax avoidance for example, by which we mean completely artificial arrangements which have no clear purpose other than to avoid tax by complicated schemes, is unprincipled, and companies should not pursue such arrangements. We are broadly supportive of the European Commission’s initiative seeking to amend the existing Parent-Subsidiary Directive - originally conceived to prevent the double taxation of same-group companies based in different Member States - which update its anti-abuse provision and aims to ensure that specific tax planning arrangements, such as hybrid loans, can no longer benefit from tax exemptions. This should discourage companies from exploiting exemptions, for tax benefit, in a way that they were not intended for various intra-group payments across the EU.'

ACCA believes that greater transparency on tax treatment and how decisions on tax are made would benefit companies’ reputations and help wider stakeholders to understand the issues and complexity and how it affects the organisation.

Chas Roy-Chowdhury explains: 'Tax cannot be seen in complete isolation from the wider business model, and its strategy and planning. It is one part of the overall long-term value creation process for the company and should be seen in that broader framework. This includes the context of employment created, investment in research and development, the wider social and environmental benefits and impacts in regions where the company operates, and the value offered to consumers.

'As a global accountancy body, ACCA also favours co-ordinated international action to address matters which cannot be resolved by individual jurisdictions, such as transfer pricing and a level playing field to disclosure, which are being pursued via G20 and OECD discussions' Chas Roy-Chowdhury concludes.